Freight shipments and expenditures continue on downward path in October, reports Cass

Continuing a pattern of stops and starts in the freight transportation market, October marked the third straight month of both annual and sequential declines for shipments and expenditures, according to the most recent edition of the Cass Freight Index Report from Cass Information Systems.

Many freight transportation and logistics executives and analysts consider the Cass Freight Index to be the most accurate barometer of freight volumes and market conditions, with many analysts noting that the Cass Freight Index sometimes leads the American Trucking Associations (ATA) tonnage index at turning points, which lends to the value of the Cass Freight Index.

October freight shipments—at 1.092—were down 4.7 percent compared to September, following a 1.7 percent August to September increase and a 1.2 percent July to August decline. Compared to October 2014, shipments are down 5.3 percent. Even with these declines, shipments topped the 1.0 mark for the 62nd consecutive month in October, but the report noted that October’s shipment level is at its lowest level going back to October 2011.

And it added that October’s shipment decline was “much sharper” than in recent years and is directly correlated to falling imports and exports along with decreased domestic manufacturing levels. Another factor it cited was “bloated” inventories, coupled with a possible interest rate increase by the Federal Reserve leading businesses to cut back on new orders placed over the last three-to-four months, which, it said, is lowering import volumes, leading to less freight to move, and slowing down industrial production.

October expenditures—at 2.435 were down 2.2 percent compared to September and down 8.7 percent annually, with expenditures now having fallen sequentially in three of the last four months and in line with changes in shipment volumes over that same timeframe. Cass said October’s decline is in tandem with shipment volumes, as well as lower spot rates driven by excess truckload capacity.  This has been evident with truckload contract rate increases in the 2-3 percent range going into next year, with dedicated up a bit more at 3-4 percent.

October 2015 represents the fourth year in a row expenditures and shipments have been down in the month of October, but despite these declines Cass observed that consumer sector goods are the market’s strongest, which is labeled “ a silver lining in the storm clouds, because it means consumers are still in the game.”

Rosalyn Wilson, senior business analyst with Parsons, and author of the annual CSCMP State of Logistics report and contributor to the Cass report, wrote that the first estimate for third quarter GDP growth at 1.5 percent represents the domestic economic headwinds, driven by the strong U.S. dollar that make U.S. goods less competitive overseas, and a slowing global economy.

“However, the consumer sector is rising to the occasion and continues to improve, providing the missing element to a full recovery from the Great Recession,” she wrote. “Consumer spending has been bolstered by low inflation, especially with fuel prices; improving jobs creation; and stronger household purchasing power.”

But excess inventory remains problematic as the pairing of record inventory levels and an expected interest rate increase are likely to lead to increases in inventory carrying costs, she explained, and could lead to a drawdown akin to what occurred in 2009 and 2010, when there was a significant inventory drawdown.

As Wilson said in September at the CSCMP Annual Conference, she expects freight activity to taper off as the year comes to an end, with retailers and wholesalers having ample supply for the holiday season that will not translate into import and freight shipment gains.